2008 (1) TMI 12 - SC - Income Tax

Seizure of bank account is not equivalent to seizure of cash amount, deposited in bank is money appropriation of certain amount for certain liability upheld - Even though bank account disclosed in the books of account but assessee fails to disclose the source of seizure, seizure can be made

Issues Involved:
1. Legality of the search and seizure operations.
2. Validity of the restraint orders under Section 132(3) of the Income Tax Act, 1961.
3. Jurisdiction and authority to issue fresh warrants of authorization.
4. Retention and appropriation of seized amounts.
5. Compliance with procedural requirements under the Income Tax Act.

Issue-wise Analysis:

1. Legality of the Search and Seizure Operations:
The appellants challenged the search and seizure conducted on their premises on 4.8.2005, arguing that the assets seized were disclosed in their regular books of account. The respondents, however, justified the search and seizure operations, stating that the authorized officer concluded that the bank accounts were undisclosed, leading to the immediate restraint order. The court noted that the search and seizure operations were carried out under the authority of warrants issued on 3.8.2005 and 4.10.2005, and the subsequent actions were in line with the provisions of the Income Tax Act.

2. Validity of the Restraint Orders under Section 132(3) of the Income Tax Act, 1961:
The appellants contended that the restraint orders on their bank accounts were unjustified as the accounts were disclosed in their regular books. They argued that the restraint order ceased to be operative after 60 days, as per Section 132(8A). The respondents admitted that the restraint order expired on 3.8.2005 but justified the issuance of fresh warrants on 4.10.2005. The court observed that the initial restraint order was revoked, and a fresh order was issued, which was within the jurisdiction of the authorities.

3. Jurisdiction and Authority to Issue Fresh Warrants of Authorization:
The appellants argued that the fresh warrants of authorization issued on 4.10.2005 were without jurisdiction. The respondents countered that the fresh warrants were issued after the initial restraint order expired and were necessary for further investigation. The court found that the authorities had the jurisdiction to issue fresh warrants under Section 132(1) of the Act, and the subsequent actions were legally justified.

4. Retention and Appropriation of Seized Amounts:
The appellants claimed that the retention of the seized amounts for estimated tax liability was not permissible after the deletion of the relevant provision in 2002. The respondents argued that the amounts were retained for existing liability and were not appropriated as the assessment was ongoing. The court noted that the amounts were deposited in the Personal Deposit (PD) account of the Commissioner and were not part of the Consolidated Fund of India, indicating that the amounts were held in custody until the final determination of tax liability.

5. Compliance with Procedural Requirements under the Income Tax Act:
The appellants argued that the authorities failed to follow procedural requirements, including providing an opportunity to explain the source of funds and responding to their letters. The respondents contended that the procedural requirements were followed, and the actions were based on the findings during the search and seizure operations. The court observed that the authorities acted within their powers and complied with the procedural requirements under the Act.

Conclusion:
The Supreme Court dismissed the appeal, holding that the authorities acted within their jurisdiction and followed the procedural requirements under the Income Tax Act. The court directed that the amount transferred to the PD account of the Commissioner be kept in an interest-bearing fixed deposit to ensure that the assessee would be entitled to interest if they succeeded in their claim. The assessment was to be completed by 31st March 2008, as statutorily provided.

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